FHA to the Rescue?

President Bush has allowed mortgage holders to switch to FHA insured mortgages. in addition one will not have to pay income tax on mortgage principal that is forgiven.  Here is another example of understanding accounting and the tax code to be able to explain transactions to the public.

As the article says, suppose the lender drops your mortgage to $250 K from $300K. You do not have to pay $50 K of the mortgage, it has been forgiven. This would normally require you to report $50K of income on your Form 1040 annual tax return.  You would pay your highest marginal tax rate times the $50K. If your rate was say 28% you would owe 50 x .28 or $14,000.  Now you will not owe it.

No doubt this will 'brake' some of the fear about an imploding market.  How successful borrowers will be at actually getting this done remains to be seen.

Now read Maria Bartoromo's interviw the the CFC CEO.  ANgelo Mozilo says he didn't realize values would be going down, maybe he should have been reading this blog!